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Ratchet Clauses and Compensation

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Ratchet Clauses and Compensation

Amendments to the Retail Shop Leases Act: Ratchet clauses void

Recent amendments to the Retail Shop Leases Act 1994 (Qld)(RSLA) mean that rent review provisions preventing decreases in rent will now be invalid.  These provisions are often referred to as ‘ratchet clauses’.

These changes have occurred in order to overcome the effect of Connor Hunter (A Firm) v Keencrest Pty Ltd (2009) where a ratchet clause in a lease was held valid. Prior to this case there was a widely held view that all ratchet clauses were prohibited in retail shop leases and the legislative changes have now reinstated this position.

The new s36A declares ratchet rent provisions void. ‘Ratchet provision’ is defined as a provision in a lease that:

• prevents the rent from decreasing under a rent review;
• limits the amount by which the rent may decrease under a rent review; or
• prevents or allows a rent review to be avoided by the lessor, for the purposes of preventing or limiting the amount by which the rent may decrease.

There have also been some changes to the RSLA’s compensation provisions. An assignee will now be entitled to compensation for loss or damage caused by entry into a lease on the basis of false or misleading statements, or misrepresentation, by the lessor.

Who will be affected by the changes?

The amended provisions apply to retail shop leases entered into after 4 April 2011. Landlords of retail shopping centres should now ensure they review the rent provisions in their standard leases to remove ratchet clauses. 

Office Location and Contact Details

Brisbane

Aitken Whyte Lawyers Brisbane
2/414 Upper Roma Street
Brisbane QLD 4000

Ph: 07 3229 4459
Fax: +617 3211 9311
E: enquiries@awbrisbanelawyers.com.au